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Made 2010, by Carl-Filip Clausson (carlfilip.clausson@gmail.

com)

Strategy and Organization


Part 1: The Map and the Landscape
Chapter 1 Evolution of Strategic Paradigms
Fords stubborn adherence to an old formula of a uniform product to a mass market finally led to General Motors taking over dominance in the industry. The movement from craft to industrialism; by standardizing each component economies of scale were gained. There was no longer any need for a craftsman to have a broad set of skills. The 1950s and 1960s saw 4 per cent annual growth in the OECD countries. Operations analysis and integrated control models for companies seemed to promise almost unlimited future growth and rationality. If you dont take care of your customers, somebody else will: outside-in The coming of a new era was announced by three phenomena: the demanding customer, Japan, and the oil crisis. In the mid-1970s a new concept starts to grow in management theory: service management. It was the lack of growth and therefore a new competitive climate which created a need for new frames of reference in business economies. Another important contributing factor was the Japanese export offensive. Japanese had revolutionized manufacturing, products were now of high quality and sometimes quite innovative. With growing personal wealth, new media, new habits of international travel, customers had become more active, more demanding, more aware of alternatives. Companies cost structures had changed, investments were now in distribution, marketing, branding, R&D. The customer became much more than a receiver. The key flow was not from the factory outbound, but from the customer inbounds. The concept changes from inside-out to outside-in. The packaging and transfer of knowledge across the organization, visionary and motivating and communicating leadership, empowerment and education of human resources became prominent in business theory and business practice. Critical competence moves from production competence to relationship competence. The new strategic paradigm was called customer base management. The economy of reconfiguration: the context for a new strategic logic The last few years have brought a shift into a new era, where the driving force is information technology. Out of these opportunities emerges a new archetype of the organization: The business company as an organizer of value creation. The customer is now actually a coproducer, and a co-designer, of value creation.

Chapter 2 Reconfiguring the Value Space


Principle of density, the best combination of resources is mobilized for a particular situation. Density expresses the degree to which such mobilization of resources for a time/space/actor unit can take place. The effect of technology: loosening of constraints The effect of technology is to loosen constraints, what was not possible becomes possible. Todays new technology liberates us from constraints particularly in terms of: Time Place Actor Constellation Drivers promoting density The first set of driving forces is related to the ability to break up, or to unbundle; the second to the ability to link, and put together or to rebundle. Information about the asset-incontext and not only the asset itself is critical to us.

Dematerialization and liquification Knowledge exists in language and concepts which are culture-embedded (shared between individuals and extending over generations) and the transfer of which depend on the context and on gestures and body language. It is often only in interactive social processes within a given context, with a given cultural background and expectations network, and through procedures which in themselves may not have been coded and made explicit, that the tacit knowledge may express itself through action. So while it is true that there is an explosively growing virtual information world it is also true that the dematerialization of knowledge does not at all keep pace relative to many other dematerialization processes. Still, with digitalization we have taken by far the greatest single step towards dematerialization of information in the history of mankind. An immediate effect of dematerialization is liquification, meaning that what has been dematerialized can easily be moved about. Another effect of this is the opportunity for increased specialization. To outsource, or more generally to relieve actors from performing task which can be better performed elsewhere. Unbundleability IKEA has unbundled the activities along the dimensions mentioned earlier:

In place, by moving assembly from a factory. In time, moving assembly from before to after purchase. By actor, the customer assemble, relieving factory workers from doing it. Why has IKEA been successful? Because they know how to unbundle the total set of activities required to create value, and then reallocate them to different economic actors. Rebundleability Just as dematerialization and unfreezing and liquification make unbundleability possible, they also promote rebundleability. Also, just as the new technologies make increased reliving possible they also make enabling possible. Enabling means I can help you do things yourself that you were never able to do before by empowering you with more capabilities and assets that you did not have access to.

Chapter 3 Some Consequences of Dematerialization


While there may be a tendency for up-front costs to increase, there is certainly a sharp drop in the reproduction cost for dematerialized assets. Therefore, the relationship between average cost and marginal cost dramatically increases in the immaterial world compared to the physical world. Sellers usually look at their costs as the minimum transaction value they will accept, but they may also calculate the value of possible future transactions into the price, seeing the transaction as an investment in a future revenue-generating relationship. Buyers will consider what the acquired asset will help them achieve in considering the price they are willing to pay. They, too, may and often will give a look to the future and consider at least part of the transaction an investment. (leverage value) $10000-book example (p. 38): A book (asset) should be priced between what is not an incentive to copy it, and the incentive to borrow it from a colleague at the same time paying a fee for that. This is a limiting factor, as well as competition. In the new economy transactions tend to deal relatively more with future value-creation expectations than in the old economy. The very dematerialization and removal from physical constraints of an asset increases its flexibility. Dematerialization and increased efficiency of physical processes Markets can be made much more efficient if more actors can be brought to the market through the virtual world. From a vertical to horizontal logic Vertical control logic no longer functions; the horizontal flows and liquid assets simply escape its traditional modes of exercising power. However, geography still matters. To take any company from Silicon Valley and put it in say, Lille in France would dramatically influence it. Opportunity becomes imperative

The vacuum principle of business and value creation: if your company doesnt use the opportunity to fill the value space vacuum, somebody else will. The point of the new economy is to link the exploding opportunities of the virtual domain with the physical and geographically limited domain.

Repositioning of the leading actors

New archetypal actors The new economy brings a new set of archetypal actors: Market makers for new infrastructures (service, software, media) Large corporations (use dematerialized assets and their infrastructures for rebundling different parts of the physical world on a global basis; Prime Movers) The small entrepreneurs (specialize in some small area of the value-creation ecology, taking advantage of the dematerialized world) Territorial actors (Nation-states which continue to function according to the old logic of control will find their efforts futile) However, another type of territorial organization is becoming increasingly important, namely cities and regions. Cities and regions are among the most fascinating actors and instituions in todays world.

Part 2: Shapers of the Landscape


Chapter 4 Chained to the Value Chain?
Todays market game is much more about who can most creatively design framebreaking systemic solutions than about who can position himself in a chain. Reconfigure of be reconfigured The vacuum principle results in a reorganization of value creation. Prime Movers are the emerging class of actors who take advantage of the new opportunities. They obey the call of business today: reconfigure or be reconfigured. They realize that the key to the leading position in the new economy is in creatively using the dematerialized assets and flows. They see the handling of these dematerialized flows as their core processes. They transform information into knowledge which allows them influence over physical processes and extended actor systems. The conceptual organization they try to manage is much larger than their legal boundaries, and the contextual domain they try to appreciate and influence is larger still. The exploded company

The path of Prime Movers

The dominating part of the economy is now in so-called services as opposed to goods production. It has been said that the US GNP now weighs the same as 100 years ago but has twenty times the value in real terms. Outsourcing to specialists Explained in the book The Machine that changed the World, Toyota had gone much further into unbundling of different functional activities and their associated assets than General Motors. Scale and scope advantages in specialized areas of R&D take on dimensions which even the giants cannot match. And talent often tends to flow more easily to the independent units with more versatile tasks and networks and less perceived elephantiasis and bureaucracy. Emancipating imprisoned assets The general discovery that assets could be asleep, imprisoned into paralysis within large structures, explained many of the business trends of the 1980s. Corporate raiders acquired companies and then chopped them up and sold the various pieces, where their positional value would be higher than their substance value. Moving towards less commoditized areas of value creation Trends cascaded a whole range of business truths such as back to the core business, stick to your knitting, organize around core competences. The accumulation of trends Protests are going on again globalization. Good or bad? Good for the corporations and the customers, if well done. Bad for nation-states and territorial organizations who do not know how to make themselves competitive. Outsourcing is good, in that they create entrepreneurship and development of a rich fauna of specialized competences. Relocation is bad for employment if the territorial units try to resist change rather than see it as an opportunity for flexible redeployment of resources into areas of higher productivity and knowledge-intensive value creation, thus following the path of higher productivity and greater wealth through creative destruction that history has proven to be the valid one. The vacuum principle functions: it is now possible, and it is beneficial, so it will be done. Opportunity turns into imperative. There are three kinds of actors who trigger reconfiguration: imperfection-based invaders, technology path-breakers, and reframers.

Imperfection-based versus competence-based reconfigurers Oslobanken example (p. 58): Keep your old bank relationship. And what should you use that old bank relationship for? To buy all the services that your old bank provides for free. Companies which had been opaque black boxes now became transparent, and new invaders were able to unbundle products/services and give better deals to customer groups which had been mishandled or exploited outright. While they eat deeply into the positions and profitability of the established players, some of these will adapt, innovate, and reconquer positions. Information technology serves as a deregulator, creating transparency and unbundleability. For imperfection-based quick success stories there are three options: cash in and get out of the business, sell out to established players, consolidate their positions by systematic, long-term strategies building new capabilities. Technology path-breakers as reconfigurers Many of the new technology companies hailed as the drivers of todays business revolution are among the least customer oriented-companies and have the lowest awareness of what they are doing at a conceptual level. But they happen to have the right product at the right time.

Chapter 5 Prime Movers as Reconfigurers


Prime Movers tend to envision a broader Value-creating System. The results tend to be boundary breaking, redefining the roles of different economic actors and setting new rules of the game. IKEA At the opening of the first warehouse outside Stockholm the line of impatient and expectant customers outside was so long that IKEA lost control and the customers stormed into the warehouse to pick up furniture themselves. This event was then creatively reinterpreted, and led to the systematic shifting of activities over to customers. Apple and Microsoft Time would soon show that the leading company in the world of personal computers would be one which did not manufacture and sell computers at all, namely Microsoft. They realized that they could use their software to mobilize and manage hardware and physical manufacturing and product development. Shahal Medical Services Ltd Their developed system clearly reconfigures health care. For one thing, it is explicitly based on shifting more activities, knowledge, control, and power to the end-customer/patient by the use of enabling technology. Ryder Systems Trucks were sold to companies packaging them together with other services and offering the end-customers overall logistics system solutions. Foremost of these new companies was Ryder Systems. Ryder had managed to reframe the offering, outconfiguring the traditional players and attributing the role of subcontractors to them.

Rule breakers with a vision Prime Movers develop another specific competence, namely the competence to mobilize and manage external actors and their competences which are outside the Prime Mover company. Prime Movers add a unique competence to the whole: a vision-based network pattern, and the ability to actually bring players with disparate assets and competences together into forming a new, functioning Value-creating System. Prime Movers move from focusing on a traditional and narrow set of competences to a much broader and partly new set of competences and assets, which they are able to mobilize and coordinate so that the result becomes a shift of focus from a product or service to a Value-creating System.

Prime Movers How do we recognize one?

Prime Mover can be defined as moving from narrow and traditional competences to mobilizing broader (and developing new) competencies, and from accepting the existing business definitions and rules of the game to imposing new rules of the game that transcend traditional industry boundaries and business system definitions. The reconfigured What happens to those who dont reconfigure? Truck makers found their bargaining position and profit margins seriously squeezed as Ryder pushed them into the corner as subcontractors, taking over much of the customer relationship. Will Prime Movers dictate everything in a global business system? Not likely. There are two reasons for this. The first is that new opportunities for value creation also favor small players and invaders. Prime Movers can never feel safe; their mistakes will be exploited not only by a few main competitors but by thousands of little players. The second reason is that the world is full of opportunities to reconfigure and reframe ones business. The game is not lost for Apple because Microsoft has become such a formidable Prime Mover. Truck makers can develop strategies of their own, different from that of Ryder, to counter Ryders Prime Movership position. Identification with Value-creating Systems: upframing A company that wants to expand its notion of the Value-creating System in which it works may start by systematically looking at the life cycles of the products and the total valuecreation contexts of the customers with which it works. The car industry, for one thing, has become forced to look at the car from design to recycling. Second, it creates structures and procedures to ensure the effective deployment and marketing of used cars. Third, it looks at the life cycle of the customer by providing a set of cars each suitable for different stages of the customers evolution. Fourth, it looks more at the totality of the customers transportation situation, e.g. the Smart car.

Into the customers business A particularly fruitful way of reframing is to focus on the customer of the company as the major stakeholder. The customer offering is seen as an input in the customers value creating process. True customer orientation means that one has to go beyond the direct relationship between oneself and ones customers to understand the relationship between the customers and the customers customers from the first to the second level customer relationship. The value star

From value chain to value star.

The customers efficiency versus his effectiveness Seeing the offering to the customer as an input in the customers value-creating process it is often useful to distinguish between two types of effect. The first is related to the customers internal efficiency; if the cost of various inputs to the customers process can be made lower, the customer will have the benefit of a cost advantage as a result of our intervention. Second, the input we provide to the customer has a direct effect on the customers own customer offering; our customers ability to develop his market position as a result of offering innovation will be enhanced. We may say that his external effectiveness has been enhanced. Relieving and enabling Very often a supplier can relieve its customers from doing certain things; since the supplier can do them better. Thus, certain value-creating activities are reconfigured from the customer system to the supplier system. The supplier may provide offerings which enable the customer to do things that the customer was not able to do before. Winning the access channel battle Companies go to great efforts to hang onto and cement their customer relationships while we can expect their competitors to do their best to cut off and take over those relationships. The access channel battle is raging. New access channels such as media and the Internet, the raised knowledge and activity levels of customers are all factors that contribute. In the early Internet days most companies saw their website as a marginal addition to their advertising budget. Later on it became part of the marketing strategy and consequently came under the responsibility of the marketing manager. Today it is distinctly on the desk of the CEO in the transformation to an e-business file. The relationship between company and customer, and therefore the access strategy, typically also has both a physical, an intellectual/rational, and an emotional aspect.

Examples: Silvio Berlusconi gained access to the emotions of all Italians by acquiring Milan AC and building it into the worlds most successful soccer team over a period of years. With such a combination of access strategies it was perhaps not a surprise that Berlusconi became prime minister of Italy just a few months after announcing that he was going into politics. As Louis Gerstner became CEO of IBM, the common advice was to copy the competitors by cutting up IBM. But Gerstner recognized that it would not capitalize on the two major assets of IBM: the enormous breadth of competences, and the incredible worldwide customer base and long-standing technological interdependences between customers and IBM as well as the personal relationships between IBM people and customers. So, instead, IBM rebuilt itself to more of solutions provision and service, where IBM could use its breadth of competences. Summary: Prime Movers as reframers Prime Movers are much more than players who are virtual and who outsource activities. They are driven by vision of a redefined, more effective larger system. This ability may be based primarily on technological innovations, or it may arise from intellectual and conceptual innovations. First movers do not always become those who set the scene for the slightly longer term, and therefore the more general concept of Prime is preferred. Every economic player can, and probably should, strive for Prime Movership relative to the existing position of that player. Every actor must try to envision the future of that larger system. If ones current operational position can be clearly defined, ones intellectual position must be much wider and must imply the continuous questioning of the operational position against the background of greater forces impinging on the larger context.

Chapter 6 Prime Movership as Ecogenesis


Rhenman (1973) distinguished between four types of organizations, depending on first whether they possess a strategic management second whether they have external goal or only internal goals. In his classification, appendix organizations try to fulfill the desires of their masters; marginal organizations have no other option but to adapt and be flexible; institutions measure their success in terms of how much they are able to influence the external environment; and corporations try to optimize their own performance but generally do so thanks to their power to dominate and homogenize at least certain territories of the external environment. Thus the large and really successful organizations corporations and institutions rarely seem only to adapt passively and reactively. In the battle of Primer Movership, reconfiguration implies more than a passive adaption. Change processes are essentially reactive-adaptive outside-in processes but a few are proactive inside-out. It is not only offerings that are renewed today. What we see is the reshaping of whole business systems. The changing of a whole business landscape is referred to the process of establishing Prime Movership as that of accomplishing ecogenesis (perhaps best translated as birth of a context for co-dwelling).

Four strategies to achieve fit with the environment.

Physical ecogenesis infrastructures In this sense Prime Movership can often be metaphorically described as the process of establishing an infrastructure for a larger system. Many ecogenetic strategies are of course technology based. Examples of ecogenetic strategies are: Sony and Philips succeeded with this at the introduction of the Compact Disc, Apple were finally overtaken by Microsoft, QWERTY keyboards. Concept- and symbol-based ecogenesis Ecogenetic strategies do not, however, have to be technology based. Sometimes they start out more or less as concept based though the concept will usually have to be backed up with technology. Tetra Pak had a vision of a wholly reconfigured system of milk distribution. Xeroxs move from being the copying machine company to becoming the document company is similarly concept based. Both Tetra Pak and Xerox established visions of a more effective larger system, spanning resources and processes much broader than their own realm of activities. The bridge across the strait of resund, a physical artifact became a symbolic and catalyzing artifact long before its opening and it gave new life to the concept of region another mental or symbolic artifact. Successful characteristics of ecogenetic strategies Ecogenesis tends to come about as a dialectic interaction between hard technology/infrastructure and soft concepts. The ecogenetic process is likely to lose momentum unless concepts can trigger actions leading to physical manifestations and unless technology and infrastructures can trigger concepts in so on in a growing spiral. The strategy of achieving ecogenesis has a couple of phases, a first stage in which the seeds are sown and planted, and a second stage when they are linked to each other so that a movement and a snowball effect can be expected. The Prime Mover tends to be successful if it can identify and mobilize sleeping resources that can take on more value. To become Prime Mover and to achieve ecogenesis requires the exercise of power, but successful Prime Movers tend to think of power as power with or possibly power to rather than as power over. They design plus-sum games and make sure that everyone or enough players win.

Ecogenesis involve the creation of a social reality, bringing forth a world, in such ways that it comes to be taken for granted by a sufficiently large number of actors. The metaphor of black boxes.

Values and value in ecogenetic strategies Disney World, Hollywood, McDonalds, Coca-Cola are all examples of ecogenesis bringing forth a world. They create a landscape which becomes imprinted with their technology and their ideas. In this sense their strategies are ecogenetic: they do not adapt, they shape. Emery and Trist point out that very turbulent environments, to be livable and productive, require some overriding values and an institutional matrix allowing organizations to effectively co-exist and co-produce. As value constellations become the rule rather than the exception, values as an infrastructure for value creation become prominent. There is a strong interrelationship between values and value.

Part 3: Tools for Landscaping


Chapter 7 Co-production: Towards increased density
Economics describes the logic leading to complementary specialization as that of comparative advantage. Bosch develops the engine management system; Mercedes-Benz assembles it together with other components. Mercedes-Benz conceives and produces the car; I drive it. Of course this is co-production. The distinction between producer and consumer, or provider and customer, is ever less clear as the business landscape takes on more of a service mode. The new role patterns within what used to be thought of as industries defy classification in simple value chain terms and in competitor versus partner terms. The co-production opportunity Re-allocation of activities in time/space and between actors enables the formation of a more complex and differentiated web. And as the web becomes ever more complex, the growing multitude of relationships and types of transactions and risks gives rise to new opportunities and new services and again new players and new roles. Relationships and positions in Value-creating Systems, not individual objects, become crucial. Knowledge about how to create relationships and patterns of co-production is an even more valuable asset. Co-productive relationships change with reference to both time and space; to become simultaneous, synchronous, and reciprocal. By this process we can create time. Large corporations now set up R&D units in Europe, the United States, and Asia, so that a project can follow the sun and liberate itself from the rotation of the earth, using the 24 hours of the day rather than 9 to 5. In this chapter, three dimension of co-production which open up new opportunities to create density will be explored: customer participation, customer cooperation, and value constellations.

Customer participation The service logic experience Research has noticed a strong trend towards self-service in society. Prosumer is the expression to denote that the customer could fill the dual roles of producer and consumer. Instead of buying other peoples time (more and more expensive) to perform services the consumer buys tools (less and less expensive) with which he or she performs self-service. This line of reasoning brings us to barter currencies: Instead of a transaction which involves a product and service in on direction and money (and information) in the other, the customer puts some (but less) money on the table, plus time, plus skill, plus perhaps other assets that he or she already possesses. The customer is a value creator rather than a value destroyer. Service logic forces us to shift our attention from production to utilization, from product to process, from transaction to relationship. It enhances our sensitivity to the complexity of roles and actor systems. In this sense, the service logic clearly frames a manufacturing logic rather than replaces it. Modes and functions of customer participation The customer can participate in all phases of the business process: R&D, specification of the individual customer offering or product, actual production work, quality control. Customers can be turned into a crucial marketing force for the provider. They can certainly play a critical role in maintaining and reinforcing the ethos and spirit of a company. Customers can do physical work, intellectual work, and they can also become emotionally involved. The customer has assets that may be intangibles such as time, involvement and emotions, competences, information etc. They may also be very tangible, such as ones house or apartment, the hospital for homecare patients, the assembly factory for IKEA customers, the shopping place for Internet shoppers, or the prison for electronically controlled prisoners. Relieving and enabling revisited Seeing the customer as a produced and co-producer of value brings us back to relieving versus enabling. Relieving means that the specialized provider does things for the customer which the provider can do better. Enabling is deliberately aimed at expanding the scope of what a customer can do. Still, one of the two philosophies typically is the dominating one and it usually is relieving, by far the dominating logic of the industrial era. Making the customer more productive In some fast-growing areas in todays business world competition between providers is probably much less related to the quality of their products and services as such, but rather to their ability to transfer knowledge, skills, understanding of what constitutes effective use, and, not least, vision to imagine business and value-creating opportunities related to the products and services. The game has, indeed, change from technology push and asking the customer what he wants to a much more sophisticated mode of interaction and to an enabling philosophy. The most interesting business opportunities for reframers lie under the cloud in the figure below.

Four typical situations of provider versus customer knowledge.

Cooperation: customer communities Two categories of constellations of economic actors in which activities are reshuffled in an increasingly intertwined are distinguished here: customer communities (for cooperation between customers), and value constellations (which roughly stands for cooperation between providers). Customers organizing themselves for cooperation is far from new. Banks are institutions which help to match people with positive and negative cash flows over stages of life. Producer and consumer cooperatives organize individuals who are weak on their own but who can get together to bargain, buy, invest, and own together. Today many cooperatives that still exist have lost position. Perhaps many of them were originally based on the idea that capital is the critical resource. Strength from cooperation today is not from adding together small pieces of capital, but from adding together small pieces of knowledge, competence and bargaining power. The fact that individual customers can exchange time and competence and experience and contacts with each other in a kind of barter arrangement accounts for much of the growth today of local, spontaneous cooperatives. Value constellations One type of co-production based on the complementarity of providers is outsourcing driven. A provider finds it rational to take some of its activities and re-allocate them to subcontractors with a higher level of specialization, probably leading to higher quality as well as lower cost. An example of a value constellation is EF Education. By organizing the relationships between these actors, all with complementary resources and desires, a new system was created. A number of resources whether an empty classroom, an under-utilized teacher in the summer, or an available unoccupied bed in an English home were now given more value by being positioned in a larger system and complementing other such resources. Another example is JC Decaux, which offers to provide a city with bus stops for free over a twenty-year period, and they maintain them perfectly well. The bus stops are attractive as advertising space and in this way JC Decaux links actors into a Value-creating System which did not exist before: the city administration, public transportation companies, advertisers, and the public. The logic of value constellations Assets and resources are not inherently complementary; what makes them complementary is an idea that links them. Thus, assets may well contribute to the development of ideas, but it is certainly so that ideas and knowledge are what creates value out of assets. The examples of

EF Education and JC Decaux are illustrations of conceiving assets in terms of their positional value, as opposed to intrinsic value. As has already been pointed out, it is a key feature of the new economy that the valuation of assets has to be based on the position of those assets in a Value-creating System rather than on any kind of intrinsic value. As has already been pointed out, it is a key feature of the new economy that the valuation of assets has to be based on the position of those assets in a Value-creating System rather than on any kind of intrinsic value. Information does not create ideas. Ideas create information. The Prime Mover makes sleeping assets liquid and rebundleable by conceiving a new context in which they can be made useful. The organizer has costs for creating the market, and needs to be compensated for its role as a market maker, as well as getting a risk premium as an entrepreneur. The price that is charged to the customer is composed of the following elements: 1) What is required for netting between the various participants after barter has taken place. 2) A fee for the costs of market making. 3) The usual risk premium pertaining to all entrepreneurs, giving the opportunity for profit. In addition, the organizer may be part of the value constellation in that it contributes essential assets in addition to organizing the assets of other into a web-like pattern. This creates a fourth element in the price that the customer has to pay: 4) Costs for specific competences and assets that the focal organization contributes to the value constellation. The regulated and moneterized formalization of many services such as healthcare, child care, old age care, and others, has led to unnecessarily high cost, low utilization of potential coproduction and valuable barter currencies, and most likely lower quality than potentially possible in those service areas.

Summary: three dimensions of co-production

Three dimensions of the co-production opportunity space.

There is potential for value creation in all three areas although tradition and mental blockages tend to make companies stay closer to the lower-left-hand corner than necessary. The upper and deeper right-hand corner, both enabling the customer to be a better participant in co-production and mobilizing (and organizing) customer communities as well as value constellations, is still a largely unexplored area by most companies, rather thinking about the much less sophisticated idea of outsourcing as a way to create a web or a virtual corporation.

Chapter 8 The offering as a Tool to Organize Co-production


What services do is to link various elements with each other in new ways, the service economy and the knowledge economy are therefore the same concept. Services are activities (including the use of hard products) that make new relationships and new configurations of elements possible. Co-production for increased value to actors requires new linkages. Viewing the economy as a web of activities and actors linked in co-productive value creation gives us another, more creative view of the nature of offerings. Offerings are artifacts designed to more effectively enable and organize value co-production. Traditional activity clusters can be unbundled in terms of place, time, actor, and actor constellation. Through the sequence of unbundleability-liquidity-rebundleability it is possible to bring together, for a given time/space/economic actor unit, a much more dense accumulation of assets, human activities, and knowledge, than before, thus heightening the platform upon which value creation can take place in the time/space/economic actor unit. The offering as a reconfiguration tool. Considering IKEA again: for many customers, the gains are obvious. The customer uses resources already paid for (car, living-room, time, the free workforce of friends and family). IKEA frees up barter currencies by organizing assets into an idea-based pattern that enhances their positioned value. The offering is a reconfiguration of a whole process of value creation, so that the process rather than the physical product is optimized in terms of relevant actors, asset availability and asset costs. Offerings are frozen knowledge A physical product is a representation of past knowledge and activities. It is indeed frozen knowledge. Its frozen form makes it accessible and storable for use and perhaps re-use. The product links economic actors of the past with economic actors of the future, but it also links various economic actors in the present and in the future. Physical products are not the only way for freezing and storing past activities. Knowledge is also frozen into people (as a result of education and experience), manuals, systems, language, and culture. Most offerings that bring the possibility of new linkages to a situation are in fact multi-media ones. Physical products are a particularly efficient medium because of their reproducibility and predictability. The offering as a genetic code for learning IKEA. The traditional furniture shop will most likely find it filled with people who claim that they are professional experts in interior decoration. How is it possible to allocate this activity to a presumably amateurish customer? When IKEA stores are visited, people do not go alone. When the group goes through the maze, no decisions are taken. At the end of the store there is a cafeteria. The cafeteria really serves as a decision-making room. It is now that purchasing decisions are taken. The group returns to the store and picks up the items that have been chosen. Without the customer group being conscious of it, it has been guided through an ingenious and effective learning process. The role of being ones own professional advisor has been explicitly allocated by IKEA to the customer, and therefore IKEA has been forced to design

its offering (and itself as a system) in such a way as to educate the customer to fulfill this role (business as pedagogics). Clearly there is a great difference between a company which sees itself as distributing products to customers (value destroyers), and one that sees itself as matching and supporting the value-creating processes of consummatores (value creators). And it is towards the second role that the new business logic pushes us. A useful offering is designed so as to trigger off value-creating activities. In this sense it carries a code. The product cannot be seen isolated from the user. The design of it must match and extend the capabilities, intentions, context and processes of the user. Design is no longer something per se, but has the explicit purpose of triggering value-creating activities and put the user in a conscious or unconscious context of creation of meaning. The offering thus elevates the user in two ways. First, it gives the user a platform by providing access to an inventory of past activities in frozen form. Second, it liberates the user from this platform of past, accumulated knowledge, stimulating the user by giving him a code for value-creating activities and stimulating co-production and relationships. The effectiveness of an offering depends both on to what extent it is a good inventory of past knowledge and on to what extent it contains a good genetic code. The freezing of the customer offering: who and when? The above can be generalized to one of the most fundamental points of todays business world: to be competitive, customer offerings often need to have an element of learning. That is, they should be designed with open systems architecture. Static offerings are much easier to imitate. It will also become much more difficult for competitors to challenge, since it is both a moving target and something in which all parties have invested. The customer does not have to comply with the rules and offerings provided by local providers or any particular provider. Power has shifted. Although companies develop more and more ingenious methods to create relationships and reward loyalty, the customer no longer accepts to have his or her freedom restricted. The only way to make customers loyal today is to enable them to be disloyal. Instead of pre-freezing offerings, companies must now enable their customers to co-design offerings in real time. But an example such as Quicken (a software provider in financial services) clearly point to another direction. Instead assembling the offering involves using elements from a broad range of providers on the conditions of the customers, shown in the figure below. In this sense the customer is enabled to be a Prime Mover, organizing a set of economic actors. Offerings specify the range of exchange currencies

Evolution of who freezes the offering, and when.

With sophisticated data warehousing and data-mining techniques providers turn transaction data into valuable information and knowledge about customers, who have therefore not only given money but also information to the provider in exchange for the good or service. The list of barter currencies can be made mush longer. In the IKEA case the customer not only puts in time and competence, but also his infrastructures (such as a car, his living-room as a factory floor) in exchange for a lower price. It is indeed in highly commercial companies that we tend to find the most astute, conscious use of barter currencies today to achieve new levels of co-production in interactive value constellations. In 1996 when a municipal housing company in Malm, Sweden, offered their tenants a lower rent in exchange for their physical participation in cleaning the staircases, the tax authorities at first reacted by claiming that the decrease in rent should be taxes as income from work. The example clearly illustrates three points. Value-creating activities go far beyond what is registered in the formal, monetarized economy. Second, exchange currencies in transaction in transactions can be many things other than money. Third, there seems to be an interesting incompatibility between the logic of tax systems, income distribution systems, and the reconfiguration logic of the new economy. Offerings are different from price carriers The face that there is a difference between the price carrier and the total offering, and that the latter is larger than the former, indicates that we are dealing with a case of bundling. Such pricing tactics are very common in business (buying for example a phone where subscription is included), but they also become increasingly vulnerable in todays economy. Under certain conditions bundling becomes challenged and tends to break down, these are: a) When clients use a lot more of the free components, we end up with strong crosssubsidies from those customers who use relatively fewer of these free components to those who use relatively more of them. b) If the supplier loses the monopoly or near-exclusive right to the price-carrying components. c) If new technologies or other changes make it possible to deliver the free components separately or much less expensively. A classical example of the difference the offering and the price carrier is the pricing of banking services. Since banks had a regulated monopoly they could use the spread (the difference between interest on lending and interest on deposits) as the price carrier, giving away transactions (checking etc.) to customers for free. With deregulation and increased customer awareness this strategy started to backfire in the 1980s. Large deposit customers started to realize that they did not get a fair deal, since effectively they subsidized heavy users of free transactions. Another example is that of a chocolate manufacturer. The chocolate box certainly is the price carrier, which made it difficult for the company to see that they were really providing customers with chocolate for personal consumption and chocolate for gifts. The chocolate box is part of both offerings, but the potential for developing each of the offerings in its entirety was somehow completely mentally overshadowed by the perception of the company that the customer buys and pays for chocolate boxes. The failure to see the distinction between the

total offering and the price carrier became a serious mental blockage to innovative offering development.

Chapter 9 Three Trends in Offering Development


One way to summarize the view of offerings as organizers of co-production in Value-creating Systems, and also to emphasize some trends in offering characteristics, is to point at three emerging properties that tend to become increasingly prominent in offerings: servicification, e-ification, experiencification. Servicification Servicification means that the emphasis, when we look at offerings, is no longer on the production process that historically created them as outputs, but in their property as inputs in the value-creating process of the customer system. This shift widens the scope of what an offering is, what kinds of characteristics a company needs to build into its offerings, and what competences are required of the company. It also automatically shifts the emphasis from the transaction to a more long-term relationship with the customer. From the factory to the users value creation Typically, in relative terms, design and R&D costs go up whereas manufacturing costs go down. Costs of distribution and marketing tend to increase. Cost of use tends to rise, as does the cost of recycling. For example, a car company may make two calculations: one for the manufacturing of their product (raw material, direct labour), and one for the use of the car (depreciation, financing costs, petrol, taxes, insurance). Both are valid, but the second one will clearly show that factors other than the cost of manufacturing are more relevant to the user. Volvo, for example, used a number of specific strategies (beyond physical product design) were developed to raise the second-hand value of cars, since depreciation was found to be the largest single cost item for customers. The notion of softwareization means relating assets to each other in such a way that they create more value together. Offerings link the competences of the provider with the competences and assets of a customer and of other co-producers, so that they together interact in a value-creating process.

The offering as a risk management tool In the new economy, with the customers value-creation process and therefore a longer relationship focus, the risk picture become much more complex. Since it is not really just the product that interests the customer but the whole process of value creation the provider is expected to take a much longer responsibility and to broaden the scope from the functioning of the product to the functioning of the Value-creating System. ABB claim that about a third of their business consists of the BOT (Build, Operate, Transfer) formula (Hvalfjarargng). Customers do not want a turbine but energy supply. Or customers do not want energy supply but kilowatt hours delivered to the customers customers.

As long as offerings were seen as primarily outputs the risk of use was on the side of the customer. Indeed, many offerings consist more of skills in particular areas of risk management than of anything else. General Electris is moving away from selling and charging for aircraft engines to selling functioning engine hours (with a penalty if aircraft are grounded because of engine problems) Ryder, the logistics management company, claims that its competitive advantage is its superiority in handling risks related to hardware and to performance when it takes over the logistics function of a client. The risks of todays businesses are highly related to the behavior of humans and of economic actors, the acts of people in the figure below.

The refocusing of risk in the economy.

The increasing focus on brands is also relevant to risk. In a very noisy world, with many providers, customers evaluate offerings based on many parameters, not least including how much risk they would entail. In areas where customers themselves run great risks, managers tend to choose safe brands: IBM for computers and information systems, McKinsey for number crunching and cost-reduction schemes. Thus the offering Specifies, explicitly or implicitly, who stands for what risks Specifies, explicitly or implicitly, risk management tools E-ification The second tends could be called e-ification, a nod to the popular topic of e-commerce and ebusiness. It stands for the more general phenomenon that offerings, customer contacts, and interaction, as well as other properties of offerings, can now more than every be un-bundled into various parts and rebundled in new ways. When Xerox Corporation delivers a copying or document-handling machine, products remain linked to the respective company digitally, and the companies continue to support their effective functioning even if they are physically located in the user system. Experiencification The third trend experiencification means that offerings are now increasingly designed to be linked also into the mental and symbolic processes of customers including the meaning and purpose of their value-creating activities. Artifacts link a more general, external reality with an inner, personal, reality into a whole characterized by the pursuit of meaning and purpose.

For example, cars represent symbolic universa, and are therefore supposed to express personality and create meaning for the customer. The car business is an example of a business which, compared to some decades ago, has rapidly become more experiencified, more e-ified, and more servicified. Business models, offering patterns, and reconfiguration Why is there so much reconfiguration of business today? An important anser is because reconfiguration is possible; because it is now possible to unbundle sets of activities and assets and it is possible to create liquid global markets. It is possible and therefore it will be done the vacuum principle. When reconfiguration takes place, the principle of density applies. By identifying (customers) value-creating processes and creating offerings which leverage and match these processes as densely as possible we can begin to formulate principles for effective offerings and for how to combine and link up resources in ways that answer to the criterion of density while simultaneously being internally coherent and consistent with the value-creating processes they match. From this general view of value creation we have come to see offerings as tools to mobilize assets and link them together so that they are brought together to leverage value-creating processes. Offerings are tools for reconfiguration by meeting new patterns of co-production. Three general thrusts of offering design trends have been identified: Servicification means refocusing the offering from the product to the use (or rather value creation) situation. E-ification reflects that new technology enables us to separate even more clearly physical activities and various virtual (information and concept based) activities in business processes. Take the example of pharmacy, possible to sell and inform about drugs and drug use over the Internet, while delivery still must take place physically. Experiencification enables us to think about more dimensions of the value-creating processing that our offerings match and leverage, leading to more density. When information is unbundled from the physical objects the information is about its availability increases and its costs tends to go down information becomes free. In the information market, marginal cost tends to creep down to zero. Still, average cost may be quite high since the up-front investments and the infrastructure necessary to provide this free information is expensive. This, then, requires rethinking business models: How can we at the same time claim that the most important battles in the new economy are about information, and yet say that information is free? It is obvious that if we have information but we cannot take money from the information as such we must find other price carriers, i.e. a business model which allows us to make money although we may have to give away something for free. This is the cause, in summary, for reframing to achieve reconfiguration and rebundling. The vacuum principle, the density imperative, and the search for new business models which reflects the shifting values and prices of various assets thus together explain most of the development directions that offerings take today. And they therefore also explain why valueconstellations need to change, and why therefore we see such a very strong reconfiguration within and across industry boundaries as well as national boundaries. To handle this,

companies and other organizations must find ways to evolve their mind-sets. This is the area towards which we now turn.

Part 4: The Map-landscape Interaction


Chapter 10 Fitting into the Environment
Fitness context is a term used in the study of evolution. Many of todays organizations business and management models tell stories about old fitness contexts, about the world in which they originated and subsequently evolved. Analyzing just about any European airline will evoke images of the marriage between military and industrial bureaucracy within a nationalistic context in the pre- or post-Second World War period. Car producers still secretly seem to nourish the nostalgia of the post-war period when customers lined up for years to get one of their products. We can learn two essential lessons from the above. First, every organization must find some kind of harmony, fit, consonance, with its environment. Second, the consonance is not forever. Distinctive competence and fit Distinctive competence (Selznick) is the ability to achieve fit between the external world, the purpose and values, and the social organization that embodies the values and therefore allows the institution to in effect create value that is relevant to the external world. As opposed to more current schools of core competence thinking, Selzniks concept of distinctive competence therefore is a systemic one, expressed as fit between elements rather than any generic element as such. Institutionalization or embodiment of purpose happens through making value commitments which define the organizations character, and the building these into the social structure. Critical decisions about embodiment such as recruitment, training, systems for representation of group interests, cooperation with other institutions, therefore build the institution. Without such critical decisions an organization is unlikely to be able to fulfill its purpose and achieve distinctive competence. They imply longer-term commitments to structure and values and are therefore character-defining. The organizational structure therefore is an artifact; it reinforces the purpose and values of the organization. The business idea as an expression of fit Whereas it is futile to find single factors that consistently explain great achievements it seems possible to find certain characteristics of patterns of factor that do so. It is in the co-alignment into a coherent Gestalt, where various activities support and reinforce each other, that the secret of at least temporary success can be found.

The overall principle therefore is one of consonance or fit. Even though every business idea is unique, it is still possible to distinguish certain classes of factors which have to be part of a business idea. At the most abstract level one can distinguish between three: The external environment (what is crucial to the larger system) The offering Internal factors (such as organization structure, resources, organized knowledge and capabilities, equipment, systems, leadership, values) To bring all these factors together is no easy task. The concept of a business idea has a deeper meaning; it consists of many subtle elements. The core process of renewing the dominating ideas The core process of a company in the long term is to form new dominating ideas which are in line with the evolution of the external context. When the dominating ideas and the action consequences of them are not in phase with an evolving external contextual logic managements has failed in its core process. As Albert Einstein said: We need a new way of thinking to solve the problems caused by the old way of thinking. Change as continuity: the paradox One of the most essential features of systems theory and the theory of complexity: If we want things to stay as they are, things will have to change. A system cannot be seen, or even defined, in isolation. Its environment is not only the context in which it exists and evolves, but it is actually part of the system. An organization that remains stable can lose its identity, whereas an organization that reshapes itself even dramatically can retain and reinforce its identity in so doing. The example of the Swedish consumer cooperative An analysis of the new context, 100 years later in 1999, reveals a number of dilemmas. First, the mission of the organization, namely to help the masses to have access to daily goods materially and inexpensively, is nothing that really engages a lot of people. Anybody can have roughly the same products of the same quality at the same prices from a great number of sources. Nor is KF uniquely equipped to listen to customers any more other organizations use equally advanced methods to learn about their customers. And, in particular, ownership is hardly important any longer. Here we stand before a situation in which it is crucial to review what is the true identity of the organization, in terms of fit between the environment, the values, and the embodiment of the values and purpose in a social organization. We can generalize the triangle of fit between environment, values and organization for a new era: Environment: First, todays needs of households are hardly focused on access to material daily goods. Instead, people are much more concerned with issues to get a meaningful life. The purpose and mission and values: Thus, KF is no longer fulfilling a function that is at the core of peoples needs. The organization and social structure: However, cooperation for creating value with and for each other is a more modern idea than it has probably ever been. But ownership and cooperation are not necessarily closely linked.

Consequently, the organization is at a crossroads. The opportunities are obvious. The question is whether the institutional and cognitive barriers prohibit such a reinterpretation and its necessary manifestation in new structures. Change might have radical consequences. Yet, paradoxically, the most fundamental idea of the original identity of the company, if revisited and reinterpreted, would be the obvious thrust of renewal. The continuity hub of reframing: what should stay the same? But some companies had so effectively pruned down their corporate head offices in an effort to demonstrate the need to cut costs that there simply was hardly any structure left to embody the mental processes necessary for renewal beyond slimming down. What to retain in a change process must be the result of the mission and of the business idea that an organization adopts. The continuity hub in a change process may be certain existing physical assets. The hub of the reframing may also be capabilities. A third hub around which to reframe is the customers, who then become elements around which change revolves. Companies who ask What more can we sell? almost invariably fail. The right question is: How can we leverage the customers value creation? Digression: customer base analysis A particularly strong technique for establishing an organizations point of departure is customer base analysis. Essentially, a customer base analysis has four elements: 1) Customer profitability analysis, CPA. Profit per customer perspective. The cost side is more complicated. What we found was that companies had surprisingly little understanding of the various indirect costs that were customer dependent. 2) Analysis of the customers value creation logics. What value they try to create and how they go about it: indepth-interviews and focus groups. 3) Cluster analysis: Statistical methods with qualitative studies to group together customers and generate good economic results with and for these customers. 4) Identification of key battle-fields: Typically, each of the clusters displays its own characteristics, requires a particular offering development strategy, and is threatened by various types of external competitors and invaders.

Technological innovations in database management have allowed companies to develop CRM (Customer Relationship Management) systems which are often used to differentiate service levels based on customer profitability segmentation. Unfortunately this has often had the consequence that steps 2-4 above are not carried out. To many companies this has resulted in superficial strategizing, dissatisfied customers, and missed short- and long-term business opportunities. Summary The old practically always has elements which can be shown to have a potentially higher positional value if put into a new context. It is such proactive system change reconfiguration in which the value of certain assets is leveraged by fitting the assets into a different system, which we refer to as resulting from reframing. Such undervalued assets can be identified and serve as the hubs of reframing, i.e. as the points of departure for a redesign.

Chapter 11 Change and creation


There is a great difference between uncertainty that stems from variations around some more or less stable normal state, and changes that represent irreversible trends and leaps in the parameters of system. The former requires management, the later requires leadership. All too often we find the archetypal (standard/typical) rational organization, operating and steering clear of distributing and chaotic territories, trying to give the impression that it is in control. In this type of organization the immune system dominates. Several organizations display a seemingly completely different syndrome. They have listened to gurus explaining the learning organization, the need for chaos, the need for freedom and entrepreneurship. But in the end not very much comes out of it. Something is lacking, something that is related to the quality of a conversation leading from entrepreneurial individualism to useful and conceptually framed intersubjectivity; hysterically hyperactive organizations. The immune system dominates versus the hysterically hyperactive organization exemplify a dichotomy where both ends of the spectrum carry grains of truth but which must be transcended by some higher logic to become practical. There must be landmarks for navigation that rise from the horizontal landscape and focus organized action. Emerging ideas on change and creation The simple and the complex The theory of dissipative structures implies that systems move from one state of complexity into more complex environments. If the new environment contains new elements often referred to as characteristics of chaos a system will have to invent new ways of structuring itself to let the new energies flow through it without destroying it. To undergo structural change, the following conditions must be fulfilled: Some degree of plasticity and sensitivity which carries on a constant interchange with environmental events, acting on and reacting to them Some source or mechanism providing for variety, to act as a potential pool of adaptive variability A set of selective criteria or mechanisms against which the variety pool may be sifted An arrangement for preserving and/or propagating these successful mappings.

Dunn (1971) describes social learning as process of evolutionary experimentation, during which stages of adaptive specialization, which implies a refinement and development of the ability to live in and exploit a certain niche while adaptive generalization implies that new adaptive zones are made available to the system. At bifurcation points the system undergoes a phase change. The dramatically increasing interconnectivity in the economy caused by communication technology can vastly accelerate such processes. The phase change is characterized by principles of positive feedback. Such phase changes seem to be particular characteristic of networks, which when they reach a critical mass have the ability to dramatically change their character. Phones, and the Internet are often quoted as having such characteristics, as long as few people are linked to the Internet the usefulness of my connection is limited. This brings us back to a key point in this book, namely that the relative importance of positional value to intrinsic value rises as a function of increased unbundleability and rebundleability. If the mechanisms and force fields are fairly well understood the direction of change may be somewhat predictable, though timing may remain extremely difficult to foresee. In all likelihood cancer will be conquered but when? * Geologists believe gthat have farily good ideas of where volcanoes will erupt and earthquakes will happen, but are at loss to say when. Genes and memes Culture and language can become very strong tools to influence not only individual behavior but also systemic behavior. We can create language artifacts, which have popularly become called memes. Management science has invented memes such as TQM (Total Quality Management), BPR (Business Process Re-engineering), service management, core competences etc. which have all become catalysts for interaction and which have clearly changed the behavior of masses of managers, in turn resulting in a changed reality. Social reality and artifacts The process of constructing a social (shared) reality goes through a number of interrelated and, to a great extent, synchronous phases. Signs and language and concepts become objectified. Soft objects (words and symbols) as well as hard objects (buildings and statues) become institutionalized. They are artifacts which serve both as a record of past and common experiences, leading to a process of socialization and community building. Cognition theory The Santiago theory say that the outside world does not exist, and that, for example, physical objects are not there except as a result of our own imagination. Humans share an abstracts world of language and thought through which we bring forth a world together. These cognitive processes allowing us to bring forth a world are not only accelerated by the existence of memes and language which is such a distinguishing characteristic (at least in degree) of humans and social systems. At a higher level by communicating about our language and about our communication we can begin to set the stage for the emergence of new meaning, new reality, and new coordinated behavior.

Through the process of cognition, the system can thus evolve its own structure and its relationship to the external world and the very structure of the external world. This is the process of autopoiesis or self-creation. The interrelatedness between the socially constructed world and the physical world is evident from these theories. The relationship becomes interdependent, dialectic. Physical structures condition us, trigger and give direction to the mental and social symbolizing processes which give rise to language; but language and the intersubjective social reality also create actions that piggyback on the physical world. The dialectic process between Man and Nature manifest itself in the landscape as an artifact. Identity, manifestation, and process The Santiago theory describes living systems in terms of three characteristics, complementary and inseperabel and all necessary: The first is the systems pattern of organization. This is the list of characteristics and their relationships which is necessary for us to recognize the system as being part of a particular class of systems. The second characteristic is the structure of the system. This is defined as the physical embodiment of the pattern of organization. Ford and Ferrari are both members of the class of systems called cars, but the ways the conceptual ideas of car has been physically embodied differ completely. Deutsche Bank and Citigroup are identifiable as banks and thus share a number of characteristics, but they are all very different in their structural embodiment. The third characteristic is the life process, the way the basic organization pattern manifests and remanifests itself in structure. Summary The set of theories referred to in this chapter allows us, however, to understand more deeply the basic nature of the processes involved in achieving consonance and also in innovating and reframing a system.

Part 5: Reframing: Tools for Map Making


Chapter 12 On Cranes and Sky-hooks
Innovative design builds on at least some existing elements, but introduces something new. The future does not exist a priori but is determined by history and by inherent driving forces and mechanisms. Causes from the past create effects now or for the future. This would be the traditional Darwinian explanation. This deterministic explanation has fought head to head with a teleological explanation. The explanation of why something happens would lie not in the past but in the future, not in historical driving forces but in purpose not because of but rather in order to. Daniel Dennett (1995) likens the teleological in order to explanation of evolution to a skyhook to elevate us towards a higher state. How can we resolve the dilemma between the machine explanation and the sky-hook explanation? According to Albert Einstein: one cannot build a house or construct a bridge without using a scaffold which is really not one of its basic parts.

Dennett, in the spirit of Einstein, suggests the metaphor of a crane. Perhaps there are no skyhooks. Much of what will happen in the future is conditioned by what history has imposed on us. But it may be possible for us to use existing knowledge to design and build cranes, from which we can then send down a hook to lift us into realms that we could not imagine. Design of a new reframed reality take place in two steps: 1) The first step is designing the tool, what we might call the crane, with existing knowledge and technology. 2) The second step is to use the tool for exploring the unknown. The creation of that tool, then, is designing for designing. Design criteria for process and substance The crane helps cover a design space between the known and the unknown, creates tension between what is and what is not. The crane should recognize that we cannot reframe without increasing our design space and knowledge. We must map, as thoroughly as possible, the explicit knowledge that exists about the present situation. This means that it recognizes the validity of certain elements that we have, but tries to put these existing elements into new systems definitions reframing them. There are two sets of design criteria for the crane: 1) Process (what steps the cranes takes us through) 2) Substance or content (what should come out as a result of the cranes workings) We expect the crane to produce reconfigured business, using creatively designed offerings that densify value creation. With regard to process we do not know exactly how to innovate, but we know a few things about the logic of innovative processes. We also, hopefully, know that we dont know everything, but that certain realms of knowledge are available to be explored and used.

Chapter 13 The Process Criteria of the Crane


Reconfiguration results from a learning and design process which can be characterized as purposeful emergence. We must assume that we know something, but that we dont know everything, and that we dont know exactly what we dont know, and that recognition of the (at least partly) knowable unknown must be a platform in which we have faith. Knowable unknown can be thought of both as under-utilized memory and as a field of exploration. The knowable unknown exists in three dimensions: 1) Memory of the past as well as memory of the future 2) Memory of the individual and memory of the collectivity 3) Memory of the non-conscious and memory as explicitated, coded knowledge Knowledge: from non-conscious to formalized Much knowledge is personal and tacit rather than explicit and coded. Today, it would be very hard to disregard the insight that the non-conscious and the tacit represent not only a crucial part of all knowledge but also a huge and very often under-utilized resource.

Jungs concept of the collective unconscious recognizes the simultaneous existence not only of tacit but also intersubjective knowledge. We often meet the analysis-paralysis syndrome in organizations. Performances by the greatest pianists tend to be characterized more by release than by tension. Ordinary language simply does not capture the essence of change and renewal. The types of process necessary for evolving and socializing tacit knowledge are very different from those that are adequate for explicit knowledge. Access to tacit knowledge requires social interaction, conversation, and participant observation. If we are skilful in inventing the processes by which the non-conscious can be developed into a well of riches for our actions we will be all the poorer for it. Layers of consciousness and reflection Since we are concerned with designing, we are concerned not only with the process of design and learning but with our own consciousness of our process of design and learning. The simplest form of learning is called single-loop learning, and it is based on the principle of negative feedback i.e. of corrective action when a misfit between the actual and the intended state of the system occurs. A second level of learning makes use of positive feedback and questions the very parameters by which the system operates and by which the intended state has been defined. The level is called double-loop learning. When we come to another distinction we probably enter the much more limited realm of human beings and social systems. The distinction between learning (single- and/or doubleloop), on the one hand, and conscious learning how to learn, on the other. Daniel Dennett (1995) makes the distinction between three types of creatures representing a more or less advanced reflection on the very process of learning. The first level he calls Skinnerians. They are basically developed by trial and error, asking What do I do next? A much more advanced form, Popperians, ask What should I think about? before they ask What do I do next? Yet another and considerably more advanced creature, Gregarians, ask How should I think better about what to think about next? before asking the other two questions. The crane we build should fulfill Gregarian criteria for the consciousness of our own process of learning.

Generating diversity versus focusing A process design characteristic of a crane must be that it reflects the basic dialectic of all creative processes: The one between generating and reducing diversity. Every true renewal process takes place in stages characterized by generation of new diversity and information, and then stages of reduction of it and focus on certain types of action. A successful organization must learn to live in both these models. We must open up but at some stage also close in and focus and make choices. In premature closure, the strategy is not a reflection of a real choice situation. If you have not opened up first there is very little to close in to. If choice has not been preceded by enough

generation of diversity, it is a pseudo-exercise, a ritual of little consequence. We will be faced with an organization which has not realized its opportunities. One of the most common errors I see in business and other organizations is giving in to the pressure of premature closure, of deciding on a vision or a strategy before a design space has been evolved, so that there is a real choice between options. If you have not opened up first there is very little to close in to. We must make the known unknown, and the unknown known, we must make the comfortable uncomfortable, and the uncomfortable comfortable. One characteristic of the crane, thus, is that it induces an opening-up phase and a closing-in phase. It starts from the ground, it opens up a conceptual space, and it then fills part of this space with new structure. The procedure goes through a series of three questions: 1) What business are we in? What are we? 2) What business could we be in? What could we be? 3) What business should we/would we want to be in? What should we be?

Stages of creating diversity versus focusing.

Traditional product-market matrix studies are often a good starting point, since they indicate something about the fit between internal assets and capabilities, on the one hand, and the external environment and customer base, on the other hand. Up- and downframing In principle we can move upwards into higher levels of aggregation upframing or we can move downwards and focus on more specific phenomena. Upframing allows us to see more structure and pattern, downframing to see more detail. There is nothing deterministic about upframing or downframing; both can take different paths. Therefore it is essential to design some procedures and rules of thumb for what sort of upframing or downframing can be particularly interesting or fruitful for thinking about reframing your business.

Up- and downframing.

Is there a normal level of abstraction? First, if there is, it is not stable and forever, but dynamic and changing. Second, what is normal is highly individual. Every organization or social system, as well as every individual or small group, has its particular language which is both structured by and structures the reality that is seen by the members of that collectivity. Language is necessary companion of new knowledge and of innovation. Language is knowledge. For this reason new language (new memes) is also a potentially strong tool to induce people to see the world differently. Memes have us in their grip, but if we know the mechanisms we can make use of memes to alter ourselves and our predicament. New memes can be the attractors and selectors that set a snowball rolling, as complexity theory tells us. Time framing
How does time flow? The traditional view.

The idea behind moving into the conceptual future is to create a different future by influencing action now. The logic of planning involves the process view and actions here-and-now. The process view involves a continuous dialectic process between moving visions. The vision is a tool in the learning process, but at the same time it is also subjected to learning; for this reason it will change as learning proceeds. Thus the flexible vision plays an important part in the growth process. The here-and-now actions: the more and the richer experiences we can dig out and bring into the future from the past, the richer the present. Therefore we should try to be exiles from the past. And the more we can bring of insightful and rich scenarios from the future into the present the more we can become visitors from the future the richer the present.

How does time flow? The other view.

The most dramatically illustrate of mentally frame in the time domain is music. The perception of sound in the brief here-and-now moment is only noise. It is only when the mind puts that noise in the context of what has gone on before that we perceive melody or counterpoint to be unfolding. With these two dimensions established that of conceptual level (resulting from up- and downframing) and that of conceptual time we can then design a number of exercises and techniques and algorithms which allow us to benefit from conceptual journeys starting in the here-and-now and continuously coming back to the here-and-now to generate action. We have now established the two basic dimensions of the scaffold or crane. The most interesting part of the crane is the upper right-hand corner in the figure below, the one which involves upframing in the conceptual future. This is the area most likely to hold the potential for discoveries of reframing our business to reflect the opportunity and imperative of reconfiguration.

Time framing and upframing as the two basic structural dimensions of the crane.

Summary The crane must allow us to take stock of what we have, yet distance ourselves from it and explore new territory. It must be able to bend minds. It must open up a conceptual space beyond what is known and what can be imagined today, and it must then allow us to fill that conceptual space with new design. It must start from where we are here-and-now, take us into unchartered territory, yet allow us to come back with new insights and start concrete construction work on a reframed business strategy. When we have been on a journey and get back home things are not what they used to be, even though we seemingly are back to where we started. We have seen new worlds. Home is the same but still not the same, since it is now positioned on a different mental map. It is now a point of departure for new opportunities. Thus, the crane is designed to take us on a mental journey from here-and-now to here-and-now, creating new insights and opening new design space during the trip.

Chapter 14 The Mental Space for Reframing


Starting from the knowledge and the world view and the mental map embodied in the language of our everyday level of discourse in the conscious domain, we have at our disposal our personal as well as social, collective, institutionalized memory of the past. We also have our ability to move into the conceptual future indeed, our memory of the future. We also

have the potential opportunity to consciously conceptualize and theorize (upframe) into the more abstract and aggregated domain. And finally, we have potentially available the realm of the non-conscious; the unconscious, the subconscious, the tacit.

Accessible fields of experiencing.

1) Our history Getting experience from the past It is highly likely that much of the objectivity disappears over time. Certain events remain in the official memory while other are forgotten and repressed, so there is a selection. 2) Previously constructed theories Searching the theories based on the past We must consider whether the old theories were good in the first place, and we certainly cannot be sure that they will apply to a new situation. Yet we can learn from them, especially if we have a chance to consider the historical context in which they were developed. 3) The non-conscious domain of the past Unveiling the influence of the archetypes of the past This is the domain of Freud and Jung (collective unconscious). The essentials of the past have been synthesized into narratives, archetypes, exemplars, heroes, myths describing fundamental human modes of behavior and human dilemmas. Going into the non-conscious past helps us understand how the physical context we function in is an embodiment of actions of the past and therefore very often without our even thinking about it controls much of our actions. 4) Sensory perception and simulation Letting the non-conscious out We continuously receive sensory stimuli of a magnitude that would completely overwhelm us has we not had a more or less automatic mechanism to sort them out and order them into familiar categories. In other words, our body is continuously exposed to a startling amount of sensory stimuli, but the question is how we make sense of these. 5) Creative induction Simulating creative induction It involves an escape from perfect logic, the generation of new perspectives and hypotheses which then must be tested for correctness or relevance and usefulness. 6) Into the rational future: projections Planning, when we master our topic

Normally done by forecasting and planning. The future becomes a set of explicit, conscious intents, goals, objectives that we want to move towards and reach.

7) Non-conscious scenarios The non-conscious radar signaling into the future The wonderful mechanism that handles sensory perception also produces images of the future, called scenarios. These scenarios are not normally very sophisticated, they seem to be based on assumptions that the models we already hold will continue to be valid. They are not projections but mental images of alternative futures mostly within our established frameworks. 8) Artifact scenarios Conscious upframed scenarios as catalysts for reframing We can also move into the conceptual future with a consciously transcendental creative intent. Scenarios become stronger as conscious artifacts and as tools for triggering creative action if they are based on upframed, creatively synthesized interpretations of the present and the past.

Summary By being aware of this map of mental territories available for reframing, and by devising ways to explore each of the territories as a resource for innovation, we can hopefully behave more like Gregarians.

Chapter 15 The Crane at Work in the Design Space


The purpose of the crane is to design new, reconfigured business. Thus, we are designing for designing. Reconfiguration in the business realm has its counterpart in the mental realm, namely reframing. Reframing for reconfiguration is a creative act which does not lend itself to rational control. But by designing a tool that takes into account, as much as possible, the logic of the innovative process in a context where the goal is reframing for reconfiguration we can at least hope to provide for the conditions leading to emergence. This is the purpose of the crane tool.

Overall design criteria for the crane The process must assume that we are Gregarians. It must allow us space to reflect on the subject, to reflect on ourselves, and indeed to reflect on our reflection. The essence of the process must be that of emergence. First, everything is plannable, second and alternatively, that everything is due to serendipity and the nothing can be planned; and third, that there is a higher purpose controlling everything. It must combine the strictness of scientific method and the crucial open-ended imagination, such as scenario planning. The process must allow and encourage sourcing of information and knowledge from memories in three dimensions: The memory of the time domain (past present future), the memory of the individual and the memory of the collectivity; the memory of the tacit and non-conscious and the memory of the encoded, recorded, as well as of the domain of the consciously theorized. The process must allow the dialectic between distancing versus focusing. This is reflected in the questions What are we? What could we be? What should we be?. The process should allow for sufficient time to short-circuit the brain, which would lead to a dramatic reductionist and compressing view of sensory stimuli. The process must be social, participative, interactive, and must include action learning to socialize, encode, and create, tacit knowledge. Spinning the process: main steps The process of reframing takes place in five overall steps. 1) Taking stock: What are we? Understanding our current predilection involves taking a systemic view mush in accordance with Selznicks distinctive competence. Whatever we might want to be or become we cannot afford to disregard the assets we have to start with. This entails going back in history to track the critical decisions and commitments, interpreting the success and failures. 2) Upframing of business systems Railroads: railway business or transportation business. Xerox: copying machines or the document company. PC cost 5% of the total cost for a company that buys the computer (the rest is maintenance, training, time lost by users). Should this company continue to strive to bring the 5% down with some decimals, or should it begin to see what might be done about the other 95% Upframing means redefining the boundaries of the system we are in at the moment. Techniques for stimulating creativity are part of the process. However, it is essential that there be solid inputs into all processes, so that the upframing is perceived as grounded, legitimate, and actionable. Some procedures which may help are: Studies of invaders Draw the value starts of the organizations customers (and preferably also of the customers customers) Design one or several blueprints for alternative co-productive value constellations By taking a larger and longer view of the customer situation ideas for upframing may become evident. 3) Travelling in conceptual time: Time framing This is to make contextual scenarios, to identify the key driving forces and the major givens as well as the major uncertainties of the general context which highly affects the activities of the company. A major preoccupation of an oil company for example, is the price of oil.

Managers can be asked to through an what if? methodology: If I knew that this was the future x years from now, what would I do today to cope with it as well as possible? 4) Creating strategies scenarios in the opportunity space Organizations can make choices, and they can influence the environment. This scenario work, aim at constructing alternative roles or strategic stances for the focal organization. In what different ways can it play a major role, be a Prime Mover? Stories in the form of artifact scenarios greatly help managers to empathize with alternative upframed futures, and help them draw conclusions about what is possible, and what are the action consequences now. Strategy scenarios have to be made testable, and maybe as for as going to a process of idealized design. An idealized design disregards current artificial and institutional blockages to its realization. It does not, however, allow us to think away any technological restrictions; we have to work with cause-effect relationships that are known or can be regarded as certain to develop within a very near future. 5) Back to here and now: Translating a vision into a business idea If the upframing and artifact scenario-making (time framing) have been thorough and successful, grounded ideas together with action consequences have now started to form in the heads of managers. At this stage a rather clear vision has begun to form, based on one or some syntheses of the strategy scenarios. A business idea should be blueprinted and then tested windtunneled to move from the prototype stage. New competences, probably a new organization structure, and new alliances all need to be prepared. 6) Into the planning mode Finally, the new set-up must be translated into an action plan.

The journey from here and now to here and now.

The case of the consumer cooperative: an example KF was originally founded to help consumers against the monopolistic tendencies of many producers of consumer goods. A cooperative structure with ownership by the consumers was made, with locally organized retail outlets and factories. With increasing competition the original purpose was no longer relevant. The most frequent recommendation from the business world was to completely abandon the cooperative concet and start to function according to sound business principles. This was not necessary.

A project initially designed in four steps was undertaken. Each step was designated to answer one specific question: 1) How is the value creation of households in the county changing today? Answer: Their concerns were very different from when KF was started, and they were much more diverse. 2) What is the current role of the consumer cooperative in the value creation of households? Answer: There was a gap between the image of the particular institution and the image of the cooperative idea as such. 3) Who are the new actors gaining share of value creation of households? Answer: Many of them focused on fields nearer to the new issues closer to the core of peoples concerns. And many of them helped to link people together. The greatest threat to the consumer cooperative is the idea of co-production and not least cooperation. 4) What possible role could the consumer cooperative play in the value creation of households? Answer: Four basic strategy scenarios were developed, distinguished along two key dimensions. One of these was whether the delivery system was to continue to be fundamentally shops, or multi-channel system. The second dimension was related to whether cooperative ideas were essentially to be abandoned or whether they should be deepened but reinterpreted. For each of the four strategies, a storyline was written what events and critical decisions had led from here-and-now to each of them, and what was the business idea, mode of functioning, values, competences, offerings, and customers. It was decided to make an attempt to go back to the competence roots (of cooperation and co-production and the customer roots but reinterpreted in a modern context). The crane at work in the example: summary 1) Todays situation (What are we?) was analyzed using various kinds of quantitative data, history and how critical events and decisions had shaped the company. The company saga proved to be out of touch with todays business reality. There was also a strong presence of historical archetypes and heroes. It was tried to surface these, making them discussible and conscious. 2) The next step was an upframing process, which took its point of departure in the customers. This led to considerable expansion of the mental maps of the possible realm of business development, seeing the customer from a value star perspective that proved particularly useful. 3) The client organizations position in this upframed system was established. While the organization had lost market share in retailing, it had lost much more share of customers total value creation. This energized the process by further legitimizing the reframing/upframing perspective. 4) Force fields and actors in the upframed system were then analyzed. Economic actors not previously seen as competitors were discovered and entered the mental map, which now consisted of the larger value star. 5) The client organizations assets, competences, customers, values were then analyzed as to their fit with this new context and new archetype business models. A number of distinctive gaps were found. But, it also found that some of the original competences and values had an excellent fit with the logic of the upframed system. 6) Four strategy scenarios were then developed and clarified for the management, including the long-term impact on the organizations identity.

7) Management chose to explore the most radical strategic scenario track, but also the one that would be most true to the core identity. After some consideration a valuable area was picked, namely the healthcare area. 8) A number of concrete business development initiatives were tested through windtunneling processes.

Part 6: Capabilities for Purposeful Emergence


Chapter 16 From Great Ideas to Great Companies
Managers who tell about their successful companies often tend to quote from a famous guru or consulting company. So what we get to hear is not always what really happened but a reinterpretation of it through current management hype. This tends to be like a photo, a frozen picture that does not take into account the movement that it represents, and the long historical process that led to this state. For that we need a movie. Current success and long-term sustainability are not the same thing. There is a difference between great ideas and great companies. Great companies are defined as those who are able to renew themselves on a more or less continuous or long-term basis. The longitudinal view So far nobody has found simply push-button solutions for being successful long-term. People evolve not by avoiding crises but by facing them and struggling through them. Many attempts have been made to analyze the characteristics of a company capable of maintaining consonance over a long period of time. De Geus uses the biological metaphor of The Living Company, referring to the ability of the long-lasting company to create its own processes. Chris Argyris has seen the mode of interaction as the key process by which a companys learning process evolves. If the mode of interaction is governed by defensive assumptions of other peoples view of the world, no or little learning will occur, even if intentions are the very best. Dominating ideas will not be sufficiently challenged since they will not even be transparent and discussible, with the result that a lack of consonance between the identity of the corporation and the environment will prevail. Burns and Stalker (1961) found that the code of conduct was found to be crucial for the functioning of an organic structure, and this code of conduct was promoted by the example and concrete behavior of leaders. Critical outcomes The maintenance of consonance between an organization and its environment is a process of maintaining dynamic equilibrium which we may call adaptation and correction. The Great Idea consists of consonance between three major factors: the environment, the values, and the structural manifestations. A successful organization has understood three major aspects of the environment: 1) The values and the power fields of the environment. The relationship between values inside and the values of the external context. How adoption of new disruptive technologies tend to be blocked because of the strong degree of embeddedness of a

companys existing technologies in a larger value network (including particularly the customers) 2) Critical dissatisfactions and assets which are somehow unexploited or exploitable, and where action could create a more efficient larger system. 3) The value-creating logic which prevails at any time. The values are related to purpose and mission, which need to be in consonance with the external context, and at best such that the focal organization becomes a crucial or even indispensable element in the functioning of the larger system. The structural manifestations of the consonance equation deal with how effectively the values have been translated and embodied in social structure and institutionalized into artifacts which manifest the mission and the value, and guide individual and collective action. If these three factors (environment, values, structural manifestations) are maintained in consonance through continuous adjustments we have a dynamic equilibrium. However, situations often occur when a company needs to structurally rethink its business. This is referred to as a frame-breaking process, where a company reinterprets itself. At yet another level, companies need over the long term the capability to questioning itself; of developing preparedness to that it can react quickly. This is the ability to achieve recurrent purposeful emergence. To sum up, three levels of outcome exists: Adaptation and correction Framebreaking reconfiguration Recurrent purposeful emergence

Critical process To achieve frame-breaking reconfiguration a company needs to engage in double-loop learning, referred to as reorientation as opposed to variation. But making a reframing does not guarantee that we have the capacity for continuous emergence. However, there is a higher level of learning again which increases the capacity of an organization to make reframing when necessary. This is the process of learning how to learn, hopefully resulting in knowing how to learn and at least new and then a glimpse of knowing how to know, and giving us Gregarian properties. Whereas single-loop learning can be fairly well understood, and whereas double-loop learning may be the result of serendipity, hazard, extraordinary leadership and/or the use of our crane such capacity to innovate continuously seems to be fundamentally related to certain capabilities and constitutional properties that lead to the invention and institutionalization of certain processes within an organization. Change is unlikely to take place unless the following are in place: Identification and/or creation of driving forces creating space to explore and enter. Driving forces may be borrowed from the external environment in the form of new technology. They may also emerge inside the organization in groups or among individuals.

The political process, which has two sides to it. One is to mobilize support for change, the other is to handle blockages to change inside or outside the organization. Renewal also requires knowledge development. This also has two sides to it. We have to distinguish between innovative knowledge which implies a change of mind-sets, and conservative knowledge which can go very deep but which is categorized in traditional mind-sets. Both are required, but the latter can sometimes become the enemy of the former. In the long term the former is an absolute prerequisite for becoming a great company. Renewal further requires resource development, e.g. how to attract talent and how to develop people quickly enough. But the most essential process for renewal is the one that is often called leadership. Capabilities, processes, and outcomes In the quest for the identity of the Great Company we are looking to identify underlying structural or even constitutional factors nurturing certain processes which can trigger action when the opportune situation occurs. These must be factors and processes that can lead to reframing, but they must be at a higher logical level again than the reframing process that our crane implies since they are supposed to lead to not one reframing process but to an underlying ability to reframe when the situation calls for it. Thus we are reasoning about three logical levels of outcome and corresponding processes that lead to them: 1) The first set of processes had adaptation and correction as its outcome. 2) The second of processes lead to reconfiguration requiring a learning process which implies mental reframing but still with elements of continuity, now framed as parts of enlarged or changed systems definitions. The processes of these two levels are analogous to single- and double-loop learning. 3) Third, we are looking for processes of autopoiesis self-creation capability, for the organization that is Gregarian in spirit, to understand what the preconditions for that elusive phenomenon of recurrent purposeful emergence are.

Capabilities, process and outcomes.

Chapter 17 Capabilities for Achieving the Critical Outcomes


Capabilities are divided into five rough categories: 1) The style of interaction. This ensures that critical issues will be discussible and confronted rather than locked into black boxes. 2) Framing. The ability to move between conceptual levels and of seeing things from the angels of different paradigms. 3) Artification skills. The organization constitute its identity in the form of artefacts, being physical or mental (memes). 4) Ecological interfacing. Organizations choice of what part of the environment they will interact with, a powerful tool to influencing them, but may partly not be controllable. We are talking about the famous position at the edge of chaos, where structures with dissipative qualities can take on new and surprising shapes. For the purpose of having to reinvent ourselves to survive we can deliberately put ourselves into situations which we cannot fully control. 5) Political leadership skill. Related to using power to protect emergent processes (and sometimes challenge them) as well as to mobilizing power to move ahead.

A scheme for differentiating capabilities at three levels of renewal.

Interaction: the social domain At the level of the company which makes continuous marginal corrections within a framework, management by fear might be quite efficient and functional here, called Model I behavior. For framebreaking and to achieve the Great Company other skills are necessary, called Model II behavior. The importance her is avoiding non-discussibility of key issues and assumptions. If managers are supposed to be invulnerable, never to expose their uncertainties, and if they are never supposed to be wrong, they will lock themselves into Model I behavior. Black boxes will remain non-transparent. Thus, to invite free and informed discussion one must

make oneself vulnerable, i.e. demonstrate that one is prepared to expose uncertainty which is the same as to take the risk of trusting. There is the importance of managers holding a basic emancipatory interest if anything more than streamlined efficiency is to be achieved. They are liberators of what is already potentially there and very strong endorsement of people to behave entrepreneurially. Framing: the cognitive domain A company needs a clear perception of what is the business idea or business model as a prerequisite for the consonance that leads to efficiency. In this way parameters taking on a value outside the normal can immediately be spotted and reacted to. When we come to the framebreaking level the development of a new Great Idea we have seen that the most important skill relates to up-framing and to time framing; the ability to see positional value of the present as part of a higher level, and preferably future context. Distancing and refocusing, use of metaphor, empathy with invaders and with customers and their value stars help. This implies the recognition that reality is a relative concept, that things can always be perceived from different angles. The crucial thing is to maintain, over time, a continuously growing variety pool of business models, possible visions and scenarios. The capability concept that best seems to grasp the essence of the framing capability at the Great Company/recurrent emergence level seem be that of languaging, communication about communication, developing language about language and about our process to develop language. The essence of languaging is that our present mode of communication, and our present world view represented by our language and concepts, will never be left unchallenged. Artification: the design domain Organization structures and systems are artifacts. They express knowledge about strategy and processes that has accumulated, and they express the way we expect behavior to be focused and interaction to take place. Physical objects such as architecture are also crucial artifacts which can have a very high impact on mental process and other behavior. Corporate symbols and signs have become not only tools for recognition, they can also be highly deliberate and conscious tools to transfer the notion of a culture and mode of behavior compare the apple of Apple in comparison with the more baroque and industrial symbol of IBM. Within the correction level we only need small adjustments. Artifacts should remind us of, reinforce, and focus what already is. We find lots of organizations with symbols of past achievements, portraits of the Great Individuals who invented the business, and books reminding us of their values, the walls seem to speak to us. Reframing, on the other hand, cannot take place without structural change that diverts our attention in new ways and moulds co-production efforts into new ensembles. Artifacts that refocus and point in another direction are necessary. There also an importance of transitional objects be they a consultant, a new theory, or something else for new ideas and innovation. At the recurrent purposeful emergence level we have to look for a higher logic. A constitution defines both differentiation and integration; it ensures tension and conflict which can help us

move into the discomfort zone while setting some rules about how conflicts are supposed to be handled. The role of ownership is crucial here. The owner must see to it that the renewal and learning processes at subordinate levels function properly. Hence, the most important learning skill that the owner must possess belongs to the level of learning how to learn. Designing the executive role constellation for differentiation and integration that leads to integrated diversity is also a highly critical artification skill. Ecological interfacing: the spatial domain Choosing to live in a comfortable environment implies giving up the ambition to be really excellent. Business companies typically move to areas where there are clusters of other similar or complementary companies. Unless fashion producers choose to expose themselves and are able to make it either in Milan, London, New York, Paris, or Tokyo they are probably not much to consider. Companies should choose its customers based on a number of different criteria: one of these should be direct economic returns to the business such as profitability per customer relationship. But another criterion for choosing certain customers is that the interaction with them can serve as a learning stage. As the CEO of one bank said: With [famous customer company X], we probably may even lose some money from doing business with them. But they are the most advanced customer in this country, we learn a lot from working with them. Unless we had this and a few other similar customer relationships, we would be much less interesting to the really talented people in our business. There are several parts of the environment which a company can choose to interact with at the edge. One is customers, another is technological frontiers, and invaders are often indicators of areas of the environment which are on the move. But it is also important to interact with other stakeholders who have a key impact on the present definition of the business, legal and regulatory changes are one such example. For maintaining a good fit with the environment at the first level an effective sensory and signal system with the established operating business environment is sufficient. At the framebreaking level we must consciously get out of the comfort zone and interact with unknown parts of the environment. We must love our invaders and learn from them, since they have studied us and they can serve as a mirror image of our own weaknesses. Since we are involved in Prime Movership we must fulfill the conditions for ecogenesis. We must find the plus-sum game and mobilize the capabilities of actors with whom we together want to create the new business eco-system, the new game. At the third level of recurrent purposeful emergence we must navigate at the edge, always searching for the misfit context. We must continuously interact with, and question, the borderlines. In particular we must ensure that the intellectual realm we deal with is much larger than the operational realm. Political leadership: the power domain The goals and ambitions of an organization must be backed up with a suitable power structure, reflecting and supporting the direction that the organization is supposed to take. The

power structure is both the enabler of action and the immune system, focusing action and weeding out what is considered irrelevant. For the first level of outcome basically incremental improvement within an essentially stable framework the type of political leadership that best seems to reflect the situation is rational leadership. It is based on an intellectual understanding of the productive processes of the organization, and supports the efficiency and continuous, adaptive improvement of those processes. Such rational leadership is not enough in situations of structural, disruptive change. The immune system may become too strong for a company to break out of the frames. At our second level, then, we need political leadership that can break up old structures. Leadership at this level always means using power to redistribute power and change the power system. Leaders who are able to do this must act either as entrepreneurs who stand for their own new vision themselves, or as midwives able to put together fragments already existing within people in a new coherent direction. The need for such visionary leadership is very strong in todays structurally changing valuecreation landscape. The challenges are essentially two. One is to articulate and propagate the new direction a task for which we constructed the crane. The other is to manage the transition. To actually replace an existing business model with another may in the process destroy many of the elements of an organization. The leader must take a stand, and be an entrepreneur, a fighter for the new and visionary, and the creator of a deviating series of events that brings the company into new territory. At the third, Great Company, or recurrent purposeful emergence, level the leader as such will be less concerned with a particular direction than with innovativeness and renewal and transformation as processes. The image of a leader who doesnt necessarily have to be identified with any particular concrete business vision or any specific framebreaking process, but more with the notion of the searching and knowledge-developing organization, continuously creating new options for itself, continuously nurturing processes that contribute to innovativeness. The third level also includes Meta-management, the activity of managing several competence elements that affect on another and the overall aims of the organization.

An attempt to identify capabilities for renewal at the three levels.

Part 7: Leadership for Navigation


Chapter 18 Bringing External and Internal Dynamics in Line
If management is the art of achieving efficiency within a more or less defined framework, leadership is the art of navigating an organization through structural change. The qualities of leadership required change during the various stages of a business idea or company lifecycle. If leadership help navigate through structural change, it must be based on an understanding of both external and internal dynamics. Identity in a world with hazy boundaries Previously we could think of the bricks and mortar, the factories, the physical products, of companies as a reasonable guide to what they are, today corporations are described as virtual and imaginary. Companies also see customers and other value constellation partners as equally important to manage as employees. This lack of boundaries, this haze, paradoxically requires us to think more, not less of boundaries. If we are to keep our sense of purpose and identity, we must have an idea of what we are and who we are. But the more the physical world becomes blurred, the more this sense of identity must come from reflection, from activities performed in the conceptual domain. Conceptualizing must compensate for the haziness. As organizations are forced to continuously reshape themselves they need to search for identity more in values, capabilities and principles, more in the abstract domain than in the physical domain. Thus, as iterated earlier, we need increasingly to distinguish between our identity and the physical/structural manifestation of this identity. It is a basic task of leadership to ensure that identity and manifestation of identity are not confused, so that both can evolve appropriately. Separating the principles of identity from the structural manifestation of identity may prove to be exceedingly powerful as a source of renewal. The practicality of strong concepts When success is determined by rapid and proactive action, the Prime Movers are often the first movers. Few systems are safe from invaders and reconfigurers. We rarely have time for a traditional sequence of crisis awareness, analysis, strategy design, and implementation. This sequence must merge into a denser, more compressed process. Reflection, conceptualization and theorizing are not inherently in opposition to rapid response and on-the-spot action orientation. This is explained in the model below. Lack of both conceptualization and action will lead nowhere. Strong focus on conceptualization but lack of action orientation is often too slow and leads to analysis paralysis. The organization which does not reflect and conceptualize what it does will become the hysterically hyperactive organization, having a lack of aggregation and structuring of knowledge as a result. Simplicity is the essence of profundity this is how the situation is characterized when action is based on pre-reflection and the advanced building of concepts. The task of the leader today is setting the scene for this.

Action and conceptualization merged.

The leadership dilemma of purposeful emergence Leadership must take into account the emergent nature of change and development, e.g. the idea that it is not entirely plannable. This poses a dilemma for leaders. They must, in fact, ensure that they are not in total control while never appearing to be lost. Displaying some level of vulnerability while maintaining a grounded idea of purpose and direction is instrumental in bringing out the best knowledge and involvement among the people surrounding seems like the solution to the dilemma. Mission and vision Mission and vision is seen as artifact concepts which are deliberately used to create purposeful, collective action. They do so by making gaps visible. Vision definitely is in the time domain, about the future. It implies a gap between an imagined future state and the present state. Mission is not related to time in the same manner. Instead, mission is related to what value creating domain we participate in and how, i.e. what role we have in what larger system. We might very well be fulfilling our mission right now, today. But we cannot, today, fulfill our vision. We may state the vision in terms of mission, how in the future we would like the larger environment to change or to be affected. Vision may be about effects on the external world, but it may also be only about the state of our own organization (for example size and profitability).

Mission, vision, and how they are related.

All visions are about the future; all missions are about the effects on the external world. If we talk only about the internal world (the company) and about the present, mission and vision as concepts have no meaning. Both mission and vision statements may give stakeholders an

opportunity to identify with the company. They therefore may mobilize energy both outside and inside the company. A vision about a mission may very often be associated with a particular person. Martin Luther King saw as his mission to emancipate blacks and he came to personify this mission and vision. Visionary leaders who did not formulate a vision about a mission will be much more quickly forgotten. The leaders who are remembered are the ones who had a vision formulated in terms of a mission. A company can achieve a true identity both for itself and for the external environment by the process of ecogenesis. One way is by having a particular technology at hand, the other is by creating an artifact concept which becomes so much of an attractor that it mobilizes the attention and energy of many players. Vision, mission, and the crane Going to a number of alternative scenarios of the upframed system and our role in it (preferably as a Prime Mover) is the equivalent of testing the fit between a number of preliminary mission statements resulting from the upframing process and a number of visionas-mission statements given different possible future states. The vision-as-mission is validated and legitimized if it can be shown to be actionable and translatable into concrete structural manifestations. Therefore we need to make the loop from the upframed conceptual future (where we now have a preliminary vision-as-mission statement) back to present. The basic outline of the crane, as presented in chapter 8, is presented below.

Mission and vision plotted into the crane structure.

Meaning and social character as drives Leadership needs to link in with social character. And social character is something that evolves with the times, as well as varies between national and other cultures. Leadership is seen as very different in different countries. Likewise, there are differences between generations. Unless leadership is able to link into social character it cannot be effective. Not only have the needs of business changed with the advent of the information and knowledge society, but the predominant social character has also done so. There is a trend towards people wanting to perform meaningful activities, not just any activity.

As already states, in this world of enormously increasing abstraction and fragmentation, in which dimensions of space and time are shattered, it is necessary to establish identity by conceptual clarity. Identity is no longer defined primarily by objects but by concepts. These concepts express purpose, meaning, and relationships. People who carry the knowledge capital or part of it to customers cannot be programmed. People are expected to handle the unexpected and to adapt to new and unique situations by inventing the uninvented. This sense of identity here and now comes from being at the same time an exile from the past and a visitor from the conceptual future. The development of the individual is always at the cross-roads in a force field of three dimensions: Between the experiences of the past and an envisioned, meaningful future. Between the constrained here-and-now and the image of the larger system in which the here-and-now is embedded. Between the individual self and the social community of which the individual is a part. We must regard more people not just as order takers, but as actors who proactively initiate, create, and co-produce. Four types of organizational culture are identified in the figure below.

Four types of organization culture.

If values favor short-term activity and if people are basically passivized, they will become order-takers routinely performing what they are being told (Routine Inc.). The Wild West situation is the one of the hysterically hyperactive organization mentioned earlier. If values are such that people are essentially more reactive then proactive, but go along with a movement which they see as highly long-term meaningful, we will have The Fan Club. This is a not untypical situation in todays high technology start-up companies. In many ways this may be the most efficient situation for a company in a rapid phase of growth. Crusaders United, in which people are actors, are involved in the joint enactment of a meaningful future, should be the most efficient the one most reminiscent of the criteria for recurrent purposeful emergence and the Great Company.

Chapter 19 What Leaders Need to Do


The attention economy means that it is not objects or units but the relationship between them which gives them positional value that is crucial. This is reflected in the gigantic process of unbundling assets and activities and then reconfiguring them into new patterns. This means

that communication becomes the most important process of the systems that we call institutions or organizations. Communication serves to focus attention but is also driven by attention. Value-creating communication: creating the license in the constituency The license to operate that an organization needs from stakeholders, and the leverage for value creation that skilful mobilization of a value constellation can give, are crucial leadership tasks. The achievement of both depends to a great extent on the mode of communication employed and the skill employed in implementing it. Another aspect of communication is whether the basic world view behind it is that of a zero sum (I win, you lose) or a plus sum (all can win) game. Combining the two dimensions, we get the figure below.

Value-creating communication.

While most traditional communication is in the lower left-hand corner of the figure, communication that leads to the growth of knowledge and creative reframing belongs to the north-east corner. Personal communicative capabilities of leaders are among the most important determining factors in making the communication process and the resulting co-creation of a newly framed or emerging reality efficient. The use of rhetoric, inventiveness in identifying emerging Gestalts, the ability to shape these into captivating metaphors and other artifacts that serve as transitional or focusing objects, a sense of timing characterize great leaders. This capacity together with strong personal powers to imagine can turn the leader into somebody who personally more or less embodies a concept or a direction, to perform the mental process of imagining and synthesizing in the domain of the upframed conceptual future. Arenas and artifacts for integrating diversity If the ideal of concept-based action orientation is to be realized, leadership must provide the setting. The demands on such a setting are that all domains of knowledge and insight are effectively being used and shared: The tacit and the explicit domains The historical domain and the present

The notion of the organizations identity and its current manifestation The contextual environment and boundary breaking-technologies and invaders versus the current definition of the business The conversation between capabilities and customers The conversation between company-based resources and external network-embedded resources

The greater the diversity, and the more conversations are going on, the stronger the potential for creative building and integration and synthesis. Since integrated diversity consists of two dimensions which are often confused as one, the figure below will describe it. Homogeneity does not foster creative conversations and tensions which lead to novelty, even if integrated. Diversity without integration leads to balkanization and tribalism. Diversity and integration together provide the foundation for renewal. Achieving integrated diversity often goes through stages. Often, the next step is moving from dependence to independence, e.g. strategic business unit movements. But from the situation created by a culture of independence it is then possible to integrate without losing the identities of the individual the interdependence culture.

Integrated diversity.

The arenas and processes that can create integrated diversity must allow different actors to come together to have conversations. This again brings us to the use of artifacts. New language that comes out of a process of integrating diversity can then serve as a selector for the continued process. Not strange, then, that one of the major functions of leadership is the stewardship of language. Politics, policy and the resolution of tension Tension is an inherent part of organizational life and of change. It exists between actors who have different ideas and therefore envisage different action paths. Tension may lead to conflict, and conflict may take different paths. As long as tension and conflict can be seen as representative of different vantage points, different interpretations, it is a sign of diversity and therefore an invaluable resource. In the ideal case tension and conflict should be channeled into new, higher-level insights and action patterns indeed, to reframing. When there is true integration of diversity, when there is interdependence and collaboration, this is possible. However, when diversity leads to fragmentation and when tension leads to tribalization and independence, or to excessive dependence, tension has probably resulted in a negative spiral. To describe the difference between these two outcomes the worlds policy and politics are useful.

One way for an organization to react to tension and foreign elements is simply by expulsion, by not recognizing them or taking note of them. It is an important task of leadership to recognize whether an idea should be expelled or whether it should be dealt with in some other way. Another means of not accepting ideas while seeming or pretending to do so could be called overlegitimation, which often is a sign of a more or less ritualistic welcoming of new ideas. A third way to handle conflicts is by compromise a little of this, a little of that. A variation of that is incongruence, in which certain elements from the new are accepted, but they are never integrated with the old into a holistic concept. The best way to handle tension and different and perhaps seemingly inconsistent elements into a higher-level framework. Good leadership tries to achieve integrated diversity policy, avoiding tribal turf fights politics. A policy-oriented culture and code of conduct is desirable. But no organization lives in a vacuum, and also the external environment and the stakeholders outside the organization have their culture and code of conduct, which can be either policy or politics based. In a very large European state-owned company in the public transportation area there had been many attempts to turn an internal culture of politics into one of policy. However, since most of the top positions were allocated by the political parties in the country in question the external power fights tended to spread to the internal corporate culture. The figure below illustrates how leaders can be able to understand how to navigate between these situations, and how to achieve a congruent, policy/policy-based situation. If politics values from the environment are allowed to influence and distort the functioning of an organization, leadership has failed in one of its most important functions: to protect precarious value.

What values dominate? Four archetypal situations.

Turning the inner existential drama into effective leadership Leadership is not for only the greatest man at the top. It is the seeming contradiction that we must be fully committed, but we must also be aware at the same time that we might possibly be wrong. This dialectic relationship between conviction and doubt is characteristic of the highest types of courage. Commitment is healthiest when it is not without doubt, but in spite of doubt.